In comments filed January 28 with the IRS regarding proposed changes in
its annual information return (Form 990) for tax-exempt groups, the
Campaign Finance Institute (CFI) strongly endorsed expanded disclosure
by noncharitable exempt organizations of their affiliations, financial
transfers and other transactions. It argued that increased disclosure
was essential for voters to be fully informed about who is behind their
political candidates.

The groups in question -- including Section 501[c][4]
social welfare organizations, [c][5] labor unions and [c][6] trade
associations and Section 527 political organizations – have increased
their political campaign activities over the last decade. Furthermore,
in the aftermath of the Bipartisan Campaign Reform Act of 2002, which
severely restricted parties’ and federal candidates access to unlimited
“soft money,” these groups are emerging as an alternative vehicle for
big political money. In one significant development, about a dozen new
“friends of the party” nonprofits have just been established by former
party officials and congressional staffs with close ties to their past
patrons.

Despite their growing prominence in campaign-oriented
“voter education” and “issue advocacy,” these nonprofits are generally
held to a lesser standard of public disclosure than groups making
direct campaign contributions, running explicit “vote for” or “vote
against” ads, or broadcasting “electioneering” ads shortly before
elections. (For federal elections, the latter must report to the
Federal Election Commission). Although Congress has mandated IRS
disclosure of Section 527 political groups’ contributions and
disclosures, it has not required such disclosure of the political
activities of other noncharitable exempt groups.

A major concern is the lack of IRS reporting on all these
noncharitable groups’ affiliations and financial and other transactions
with one another. A single nonprofit organization may include various
types of exempt groups. Even though these groups are variously
dedicated to “education” or “lobbying” or “politics,” these three terms
murky enough to allow them all to be mobilized behind a single
political objective. Also partisan political donors may use one
nonprofit as a “conduit” to transfer funds to another in order to guard
the giver’s anonymity. Without information about the
inter-relationships of these groups, voters cannot judge who is giving
how much assistance to candidates or parties.

Shining a light on this growing region of political
darkness is also critical to maintaining the integrity of the tax
code’s provisions on nonprofits’ political campaign intervention and
the new campaign finance law’s restrictions on party and federal
candidate solicitation and spending of soft money. Therefore, CFI urged
the IRS to require the noncharitable exempt groups to complete three
Parts of Form 990’ Schedule A (which is already filled out by Section
501[c][3] charities):

Parts I and II including names, addresses and
compensation of the group’s five highest employees other than
directors, officers and trustees, and the five highest paid independent
contractors for professional services. This information could help in
assessing whether an organization’s exempt components share a common
electoral purpose through common management and contractors. It could
also help in detecting whether the organization is coordinating,
perhaps illegally, with candidates, parties and agents through staff
ties and common contractors.

Part VII including
affiliations, financial transfers and other transactions with other
noncharitable exempt organizations. Again, the information could help
determine whether various exempt entities are implementing an electoral
strategy and highlight possible illegal coordination arrangements with
groups connected with candidates, parties and agents. It could also
help trace the original source of funds that have been transferred to
avoid public disclosure.

To see an electronic version of CFI’s comments,
click here.
The Campaign Finance Institute is a non-partisan, non-profit institute
affiliated with the George Washington University that conducts
objective research and education, empanels task forces and makes
recommendations for policy change in the field of campaign finance. It
is supported by generous grants from the Joyce Foundation, Smith
Richardson Foundation and The Pew Charitable Trusts. For further
information, visit the CFI web site at www.CFInst.org.